Buying a foreclosed home at a public auction might mean big savings, but the property deed won't carry a warranty. A trustee's deed upon sale, or simply trust deed as it's known, transfers property to people who buy foreclosed homes at public auctions in those states where foreclosures are handled outside of the courts. During the process of foreclosing on property, the lender designates a neutral third party called a trustee to transfer its ownership interest in the property. The trustee makes no guarantees about the property in the trustee's deed upon sale.
Trustee's Deed Upon Sale Makes No Warranty
While the standard deed used in real estate transactions makes certain guarantees about the property being transferred, a trustee’s deed upon sale only promises that the trustee is transferring ownership of the property to the new owner. This kind of deed doesn't carry the assurances made by the standard deed, known as a warranty deed. The trustee makes no assurances that the property has no outstanding mortgages or delinquent taxes. If the previous owner owed back taxes on the property, the new owner will be responsible for paying them. The trustee also does not guarantee that he has revealed all claims that other people have on the property. For example, he does not have to tell you if a utility company has a right to use a strip of your land for maintaining its equipment.
The Trouble With Title Insurance
Title insurance policies generally protect new property owners against claims on the property, such as back taxes that were not paid before the sale. Title insurance is generally issued to new owners at the time the property changes hands. However, because the trustee's deed upon sale does not guarantee that the property has a clear title, the new owner will have a hard time getting title insurance.